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How to Determine the Optimal Procurement Plan, with the Objective of Maximizing the Total Profit Using a Mathematical Optimization Model : A case study for a large Norwegian furniture manufacturer

Magnussen, Frida; Masi, Mustafa
Master thesis
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URI
https://hdl.handle.net/11250/3033445
Date
2022
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  • Master of Science [1525]
Abstract
The Norwegian furniture industry has a strong position in Norway and produces

about 30 percent of products sold in this country, employed 5,000 people (in 2018)

and there are about 450 companies registered. The companies are mainly small and

medium-sized, but there are some larger groups. The industry had a production value

in Norway in 2018 of about NOK 8.2 billion, with an export share of around 30

percent. Just over a third of the industry is in the Møre region and is otherwise spread

evenly throughout southern Norway. Among the largest furniture manufacturers in

Norway are Ekornes, Stokke HÅG and Hilding Anders Norway (formerly Jensen

Møbler). Ekornes received a major international boost with the seating concept

Stressless in 1971. In 2019, Ekornes had sales of NOK 3.3 billion (Tronstad, 2019).

In the early 2000s, the furniture and interior design industry was undergoing a major

period of restructuring. To meet international competition, the industry wants

competitive framework conditions in Norway, something the industry feels they do

not have today. In recent years, several companies have seen the need for an

optimized procurement plan. Procurement is a vital process in many organizations. It

conserves resources, raw materials, finished goods and many other items that are

crucial for the success of an organization. Optimization models help manufacturers

store and transport the right order quantities at the right time with minimal waste.

To conduct the research, an in-depth case study of Ekornes Beds AS current practices

in form of procurement were performed. Two independent mathematical optimization

models were made in the modelling language AMPL alongside an extensive phase of

data collection. Our research unveiled that there are several aspects one should

investigate before deciding on which optimized procurement plan is the best practice

for the company. We found out that the mixed-integer linear programming approach

does a good job in solving the challenges this business is currently facing with its

current procurement practice. Our finished product model increased the total profit by

16% compared to their actual model. Further on, more domain knowledge is required

within this field, but the overall rule cannot be ignored.
Description
Masteroppgave(MSc) in Master of Science in Business Analytics - Handelshøyskolen BI, 2022
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Handelshøyskolen BI

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